Demographic Shifts' Impact on Banking Stability: An Evolutionary Analysis

Navigating the Banking Sector's Evolution Through Demographic Shifts: An Analysis of Stability Risk and Policy Implications

By Patrick A. Imam, Christian Schmieder

June 14, 2024

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: IMF Working Papers convey research findings that are in progress; they do not necessarily reflect the views of the International Monetary Fund IMF, its Board of Governors, or management.

Abstract

This paper investigates how aging populations might impact banking sector stability through changes on balance sheets and risk-taking behavior across 2000-2022. While a projected decline in maturity transformation due to an aging population might lead to reduced exposure levels, the rise of an older demographic could encourage banks towards yield-seeking strategies, counteracting the diminished importance of traditional ling activities. Our analysis of advanced economies over two decades reveals a consistent enhancement in bank stability as demographics age. However, this paper underscores that the adaptive responses by banks may introduce unforeseen risks. Given the rapid global tr toward aging societies, it is paramount for policymakers to remn proactive and vigilant agnst potential vulnerabilities.

Subject Areas:

Aging Bank soundness Commercial banks Financial institutions Financial sector policy and analysis Loans Population and demographics

Keywords: Aging Bank assets Bank risk-taking Bank soundness Commercial banks Demographics Financial Stability Global IMF Working Paper No. 2024118 Loans Risk preference Solvency profile Stability risk Tl risk

Publication Detls

Pages: 51

Volume: TBD

DOI: TBD

Issue: TBD

Series: Working Paper No. WPIEA2024118

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The paper provides a comprehensive examination into how aging populations might influence banking sector stability through modifications in balance sheets and risk preferences across various economic indicators from the year 2000 to 2022. While it is anticipated that maturity transformation could experience a decline due to demographic changes, an older population might drive banks toward yield-seeking activities, potentially offsetting the reduced emphasis on conventional ling operations.

Upon reviewing advanced economies over this two-decade period, our research highlights an overall improvement in bank stability as demographics evolve. However, this analysis also underscores the potential emergence of tl risks through adaptive responses from banks to demographic changes. Given the accelerating global tr toward aging societies, proactive and vigilant policy approaches are paramount to mitigate imping vulnerabilities.

The paper serves as a critical resource for policymakers who must be aware of historical precedents that have often seen periods of relative stability preceding emerging challenges in financial sectors worldwide.

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